If you’re hoping for a long and happy marriage, a frank discussion about finances before the nuptials is a no-brainer. According to a survey of divorce financial analysts, money issues were among the three leading causes of divorce involving their clients. Basic incompatibility and infidelity were also cited.
Getting married and combining investment accounts might be a touchy subject, but both partners should share their perspective to be on the same page. Some spouses might want to maintain a level of independence and retain separate accounts. Others might expect to combine finances. And some might want a mix of individual and joint bank accounts. The correct strategy is the one that suits both partners.
Combined Assets Strengthen Unity…
According to one study, more than 80 percent of couples agreed with combining investments, and 45 percent said they make financial decisions together.
Moreover, separate research at the University of Iowa found that couples who lived together with combined assets had better relationships than similar couples who did not have joint investments, indicating that an improved relationship can be a result of combining finances.
Laura Doyle, a New York Times best-selling author and relationship coach, said that the high risk of divorce in modern society can be a disincentive for couples to combine their investments. This is often the case for couples who marry later in life and have children whom they want as beneficiaries.
But Doyle cautioned against this approach. “What I’ve experienced in my own marriage and seen with my clients over and over is that, unless you combine economic forces, you’ll never have financial intimacy,” she said. “Financial intimacy is where you navigate your money together instead of doing it alone, and it provides the opportunity to strengthen both your marriage and your finances.”
Doyle added, “If a couple keeps separate investments and bank accounts, they don’t have to cooperate to move ahead.”
… And Foster Trust
Trust and commitment, the fundamentals of any strong relationship, are reflected in the way that finances are managed. “You have to be all-in to share all your assets. It means you’re not keeping a stash somewhere in case you need a divorce lawyer. That vulnerability is the very thing that helps to contribute to greater connection,” Doyle said.
“There’s something lonely about having separate finances,” she said. “Without saying a word, you’re saying that in this marriage, it’s everyone for themselves. That’s not why you came together in the first place. What you wanted was to share your lives, and investments are part of life.”
Paul Murdoch, PhD., a psychologist and financial counselor, said that when couples manage finances separately, it’s often because one or both partners might be struggling with being fully committed to the other.
“This usually is not because of the partners but the individuals themselves. They might have been in poor relationships in the past, abused or grown up in poverty,” he said. “Consequently, being in control of their own future has become significant and helps them avoid underlying anxiety. This is often to the detriment of the marriage and emotional intimacy.”
When Combined Assets Are Not Recommended
According to Derek and Carrie Olson, relationship experts and co-authors of “One Bed, One Bank Account,” when a partner has pre-existing financial obligations such as student loan debt and other loans, those bills should be paid from a separate account. Merging all accounts might be complex and problematic.
Managing household expenses separately requires excellent communication and careful accounting. They recommend assigning bills and recording expenses on a spreadsheet to make sure that each partner is contributing the agreed amount. It can be a romance dampener, but once finances are more settled, a joint approach can be assumed to simplify bill paying.
The Urge to Merge
“You don’t have to worry about which account your mortgage or utility payments are coming from because you have just one bucket. You’re less likely to miss a payment when you keep things simple,” he said. “I like to consolidate accounts where possible because it keeps things cleaner and more organized, allowing you to have a better understanding of your financial picture.”
Experts suggested that couples consider these moves to merge their finances.
1. Determine Short and Long-Term Goals
Elle Kaplan, CEO of Lexion Capital, suggested that the financial benefits of getting married require a “focus on both short and long-term goals, while also taking into account both mutual and individual objectives for investments.” For example, if one partner has a higher appetite for risk, consider diverting a small amount into riskier investments while still agreeing on the overall portfolio direction.
Trevor Ewen, a software engineer, offered up his advice for sharing investments based on his marriage of nearly three years. “If one is an entrepreneur and the other prefers stocks and bonds, make sure each is investing in that which they are most adept,” he said in an online post. He also said he and his spouse review goals and make adjustments as needed.
2. Agree on a Plan
Write a list of all your bills and income. Decide as a couple how much you are going to commingle, whether you will maintain separate accounts and, if so, who will pay for what. Some couples have unequal earnings and might decide to split expenses based on each partner’s income. For example, if David earns 60 percent of the household income, Susan might only pay 40 percent of the rent.
Include an amount for “discretionary” spending that each person can use freely on their own interests.
3. Decide Who Pays the Bills
When combining accounts, decide who is to pay which bills and manage which accounts. That person is responsible for making sure that bills are paid on time and that bank balances are sufficient to cover expenses. Communication about expenses is crucial to effectively manage account balances and budgets.
Also, it’s important to change beneficiaries on IRA, 401k, non-retirement and bank accounts to a joint tenant or transfer on death titles.
4. Consult a Financial Advisor
A financial advisor that specializes in couples’ finances can bring a practical perspective to these situations. An advisor can help you decide on your goals, determine your level of risk as a couple and help you to consolidate your individual accounts. You will need to gather credit card statements, bills, investment account statements and credit reports.
Ryder Taff, a portfolio manager for New Perspectives Incorporated, said of clients in his practice: “We open a joint account at a single institution (called the destination institution) for the clients, then open individual accounts as needed at that institution. We transfer the individual accounts from wherever they are into the individual accounts at the destination institution. Then a simple letter of instruction clearly states that they understand they are giving up sole ownership of the assets and is used to move the individual accounts to the joint account.”
Your financial advisor should also help you to address debt, file your taxes in an advantageous way, guide you in creating an emergency fund and help you plan for retirement.
5. Review Finances Periodically
Review your finances periodically as a couple and make changes as needed. As life events occur, such as buying a home or having children, your financial planning goals will likely change. Use these conversations as an opportunity to air grievances or concerns.
What You Need to Know
Rick Barnett, president of Barnett Financial & Tax, said 401k accounts cannot be jointly owned. However, two accounts can grow as much as one unless the fees for the two accounts are higher than one account. All accounts differ in this regard so couples should examine their investments and choose the options that minimize fees.
Separate portfolios might be advisable if one spouse has many different investments, added Taff. “With many account changes, make sure you have a record of how much you spent for securities you transfer. Cost basis information is some of the most tedious to collect and important to have,” he said.
Amber Nash, a certified public account and contributor to Money Under 30, suggested that couples decide which financial institution to use before they marry and visit that facility during non-peak hours. Many institutions provide step-by-step instructions for combining accounts.